Alibaba's Chip Dreams

The e-commerce company is designing and making its own semiconductors

In March, Shanghai began testing a service that lets subway passengers walk right onto a platform, using their faces or voices to pay the fare. A voice-recognition system identifies them and dings their Alipay accounts accordingly. Soon, as trials expand, millions of riders may not need cash, or a wallet, or even a cellphone to get around. They’ll just need Alibaba.

The Hangzhou-based e-commerce company’s ambitions in China—from facial recognition in subways to cloud computing—have never required more computing power. To satisfy its own bottomless demand, Alibaba Group Holding Ltd. has added a member to its corporate family: Pingtou Ge, a subsidiary that will design semiconductors tailored for artificial intelligence. It’s part of the company’s pledge to heave $15 billion into research and development on AI, quantum computing, and more. If the chip business succeeds, it has the potential to accelerate a larger shift in how the world’s computing hardware gets produced.

Microsoft Corp. and Google already launched in-house silicon teams, deploying the hardware for their server farms and as add-ons to their cloud services. The specialized demands of cloud and AI capabilities make in-house manufacturing more practical, despite the expense. Alibaba, China’s largest cloud provider, is rolling out its first chips next year. “They’re sort of late to this game,” says Mark Li, an analyst with AllianceBernstein LP.

Chinese companies have never rivaled the U.S., Taiwan, and South Korea in producing the most advanced computer chips. But China is adamant about not missing the next lucrative wave— silicon designed to handle AI tasks such as object detection and voice recognition.